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This healthcare stock trades at a big discount, says Echelon

The superlatives are flowing for Think Research (Think Research Stock Quote, Charts, News, Analysts, Financials TSXV:THNK) from Echelon Capital Markets analyst Rob Goff, who in a Tuesday update said with the recent pullback investors currently have an exceptional opportunity to get in on THNK.

Digital health software solutions company Think Research released on Monday its fourth quarter and full year 2022 financials, showing total revenue of $21.6 million compared to $19.1 million a year earlier. Adjusted EBITDA was positive $1.6 million compared to negative $189,000 a year ago. Both the quarterly revenue and 2022 revenue ($78.6 million) were records for Think.

“Multi-year SaaS contracts signed subsequent to year-end along with our strong pipeline position Think for continued growth and improving profitability for the foreseeable future,” said CEO Sachin Aggarwal in a press release.

The Q4 revenue of $21.6 million was a little ahead of Goff’s estimate at $21.0 million and even with the consensus at $21.0 million, while the $1.6 million EBITDA was also a bit better than Goff’s $1.2 million and the Street at $1.4 million.

In his update, Goff said strength over the Q4 came notably from Think’s BioPharma clinical research organization (CRO), which outperformed with an $11.5 million revenue contribution, good for a 27 per cent sequential improvement and reflective of strong execution on the company’s record backlog, Goff said.

“Think continues to expect revenue growth to outpace operating cost growth going forward. With significant SaaS contracts already announced in 2023 along with a communicated strong pipeline of potential announcements across the upcoming quarters, we believe the Company is beginning to build considerable momentum toward scaling its business efficiently and profitably,” Goff wrote.

Goff made some minor tweaks to his estimates and is now forecasting revenue to go from $78.6 million in 2022 to $92.3 million in 2023 and to $103.5 million in 2024. EBITDA is projected to go from negative $1.0 million in 2022 to positive $7.2 million in 2023 and to positive $10.4 million in 2024.

THNK shares shot up in trading on Tuesday, but the stock is still down considerably over the past two-and-a-half years since it completed an RTO and went public in December 2020. Year-to-date, the stock is currently up about 18 per cent.

Moreover, the stock has dropped considerably since the March 7 announcement of a big contract win, a scenario worth exploiting by investors, according to Goff.

“Think’s shares have declined ~46 per cent from its 2023 high of $0.65 following its landmark $40 million contract – we would characterize this sell-off as both irrational and an exceptional buying opportunity for a company executing toward scale and profitability,” Goff said.

“We believe the shares are significantly discounted and currently trading at 0.7x/1.5x/9.6x EV to 2023 revenues/gross profit/EBITDA on our forecasted 2023 EBITDA margin of ~8 per cent, compared to its Canadian Digital Health peers at medians of 1.7x/2.4x/7.4x on a forecasted EBITDA margin of 13 per cent – the discount on EV/EBITDA becomes more apparent in 2024 with further EBITDA growth where Think trades at 6.6x our 2024 EBITDA forecast, which compares to Canadian peers at 8.8x,” he said.

With the update, Goff reiterated a “Speculative Buy” rating and $1.10 target price, implying at press time a projected one-year return of 214.3 per cent.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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